Alphabet, the parent company of Google, experienced a rough Tuesday with its stock dipping by 3.94% and 3.69%. The tech behemoth continues to face challenges, particularly concerning its ongoing antitrust battle with the Department of Justice. Recently, analysts from a prominent financial services firm brought Alphabet back into focus with a fresh analysis that wasn’t entirely optimistic.
Potential Outcomes and Remedies
Before the market opened, Morgan Stanley released a client note discussing four potential outcomes for Alphabet’s antitrust case, which it lost in early August. Each scenario suggests that the tech giant will likely face some level of impact.
In the first and least damaging scenario, Google, Alphabet’s core search business, would be required to eliminate exclusivity clauses from its distribution agreements. This would entail the introduction of choice screens, enabling users to select their preferred search engine instead of defaulting to Google. Morgan Stanley regards this as the most favorable outcome, referencing European data where choice screens are mandated, yet Google retains over 97% market share.
The second and third scenarios involve more substantial modifications. These could include implementing auction pricing restrictions and further removal of exclusivity clauses. According to the bank, these changes might create opportunities for well-funded competitors, such as Microsoft’s Bing, to capture a portion of the search market.
The Most Severe Scenario
The fourth and most severe scenario, as outlined by Morgan Stanley, involves the DOJ imposing limitations on Alphabet’s ability to compensate third parties for distribution deals. This would likely result in competitors outbidding Google to become the default search engine on major operating systems. Depending on how fierce this competition becomes, it could pose a direct and significant threat to Google’s current market dominance.
